201504 CM April

CREDIT INSURANCE
IN THE DRIVING SEAT
Ian Selby, Risk Underwriting Manager at NEXUS CIFS, winner of a CICM British
Credit Award, looks at Special Purpose Vehicles and their role.
SPECIAL Purpose Vehicles (SPVs) are
becoming an increasingly prevalent
method for large companies or
investors to manage projects. But
while the reputation of SPVs has been
tarnished in the past by the opaque world
of off-balance sheet funding – think the
Enron scandal in 2001 – used properly they
are a useful tool in ring-fencing the risks of
major projects and new ventures.
An individual company may wish to
set up an SPV to separate a project from
their day-to-day business. The partners
for a Joint Venture may wish to set up an
SPV to be able to clearly allocate costs
and benefits between the partners. Where
external funding is needed, lenders will
often prefer to take this route to allocate
their investment to a particular project to
separate it from general funding for the
group. When it comes to a sale, an SPV
structure gives a tidy legal and operational
structure to be sold on.
However, they provide special
challenges for those seeking to assess
their creditworthiness because by definition
they have no trading history and the usual
business metrics are just not there. In
addition SPVs are often established for
long-term projects, incurring significant
initial set-up costs before any cash flows
are generated.
Examples might be: property
development for large-scale residential
projects or shopping centres; environmental
energy such as wind and solar collection
projects; infrastructure such as transport
terminals and new transport links;
technology development – where a new
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April 2015 www.cicm.com
The recognised standard in credit management